Designing a compensation plan is one of the most complex tasks for most organizations as it affects job satisfaction, employee turnover, productivity and the overall company effectiveness. If not properly managed, this may lead to high employee turnover, low productivity, among other problems which is especially true for a large service-oriented firm like McDonald's. McDonald's first-line managers deal directly with customers along with the front-line crew and it is crucial to draw up an effective compensation plan that will keep them motivated to work hard.

McDonald's has to consider various factors in order to design an optimal compensation plan for the first-line managers. Unless otherwise specified, managers will be taken to mean first-line managers in this report.

2. FACTORS TO CONSIDER IN DESIGNING A COMPENSATION PLAN

2.1 Financial and Non-Financial Incentives

Compensations can be based on financial and non-financial incentives. Financial incentives include salary and bonus while non-financial incentives include benefits and perquisites such as the use of company cars and club memberships.

English: Abraham Maslow's hierarchy of needs Itali...

English: This diagram shows the need hierarchy of ...

McDonalds

Financial incentives can motivate managers by satisfying their needs but only to a certain extent. According to Maslow's hierarchy of needs , once a lower level of needs has been satisfied, it will no longer serve as a motivating factor for the managers. As such, satisfying their higher level of needs is required. Therefore, in the context of McDonald's, once the managers are satisfied with their basic needs (pay), the monetary incentives will no longer motivate them. There is a need to provide managers with non-financial incentives such as promotion, increased autonomy and recognition so as to fulfill their esteem needs. Thus, it is necessary for McDonald's to identify the needs of the first-line managers and incorporate suitable financial and non-financial incentives into the compensation package.

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4 pages84Nov/20054.0

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